You can win one of six valuable prizes by participating in our “Test Your Money and Investing IQ” blog contest – just enter your answer in the comments box below by midnight Monday, November 14.
At a dinner party recently, I sat next to a retired business owner and we got into a conversation about money and finances.
In response to one of his questions, I mentioned an important principle of finance, at which point he turned to me and said, “I’m a CPA and an MBA and I’ve never heard of that!”
Actually, it’s fairly common that I meet highly educated people who are unaware of some of the really critical basics of how money and finances work.
Funny thing is that I think many of our subscribers know these principles, even if they don’t have alphabet soup after their names.
Applying a little logic and common sense (which is admittedly in short supply in our society today) is usually all that’s needed.
And to prove my point, I’m holding a contest to see how many of our subscribers can answer the questions below correctly.
If you answer even one of these questions correctly and/or insightfully, you can win a prize.
I know that people deepen their understanding more when they participate and articulate their thoughts, so I decided to “ethically bribe” you to take a shot at it by holding a contest.
Here’s all you have to do to enter the contest…
Just type in your answer to any one or more of the five questions below, no later than Monday, November 14, at midnight. If you want, you can comment on someone else’s answer to qualify to win.
After the contest ends, our team will pick the best entry (best because it’s correct, insightful, entertaining or a combination of those). That person will win a $100 Amazon Gift Certificate. And two runners-up will be chosen to receive their choice of a $25 Dining Gift Certificate, or a personally autographed copy of my best-selling book.
Three more winners will be chosen at random – all entries containing at least one correct answer will be entered into a random drawing for another $100 Amazon Gift Certificate and two prizes of your choice of a $25 Dining Gift Certificate or autographed book. (Sorry – U.S. residents only.)
Although there are five questions, you don’t have to answer all of them to qualify.
So test your money IQ now by answering as many of these five questions as you want:
If you finance a $30,000 car through a finance company, your actual cost for the car is the money you spend on it, plus the interest you pay, less the value of your trade-in at the end of your loan repayment period.
Question: If you pay cash for a car, what’s your actual cost for the car?
If you have a $20 stock and it goes up by 40%, how much money did you make on that stock? (Hint: This is about a key financial principle, not a math question.)
According to Morningstar, Inc., the top-performing mutual fund for the last decade (ending December 31, 2009) enjoyed an 18% annual return.
However, the typical investor in that fund wasn’t so fortunate.
Question: What was the annual return of the typical investor in that top-performing fund? And why was their return so different from the return reported by the fund?
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What percentage of mutual funds, financial representatives and investment advisory services underperform the overall market? And why?
You could have $10,000 in a mutual fund that reports an average annual return of 25% for four years… and at the end of the fourth year end up with only the $10,000 you started with.
How is that possible?
So there you have it – just answer one or more of these questions, or comment on someone else’s answer, no later than midnight, Monday, November 14, to get in the running to win one of the six prizes!
We’ll announce all the winners in a blog post later this month.
So scroll down to the comments box below and start typing! (Note – all comments are moderated, so there will be some delay before your comment appears.)
#1 I guess it would be the money you spend less the trade in value, because there would be no interest. Although if you took the cash out of an account that was earning you interest, now you won’t be earning it, so you might as well have financed the car because you lose that money anyway! If you use a Bank On Yourself policy, you make money as if you never took it out and you make money on yourself when you pay it back. Awesome!
#2 You don’t make anything on a stock until you sell it, and it’s only worth what someone will actually pay you for it.
#5 They report an average annual return, when the real meaningful number would be a cumulative annual return. If a fund goes down to 50% of it’s value in one year, and then the next year gives 100% gains, you’ve simply lost half your money then doubled it back to the original value, while the average between -50 and +100 is +25. I suspect the answers to #3 and #4 are also related to this concept. If a fund drops for several years in a row then it takes a long time of “reported” gains to get back to where you started!
Great answers Valerie! It is awesome to see people really starting to understand this concept….
I agree 100% with Questions 1 and 2 above!
#1 well spoken Valerie, nice way of explaining it simly. I could almost see the gears turning in your head as you contemplated the BOY principles at work here.
1. The actual cost of the car would be the price paid for the car plus the interest lost on the money used to by the car. I don’t know how to factor it in but there should be a way to also include the huge loss you take in driving it off the lot. Maybe that would be an asset depreciation issue.
2. If you sold the stock when it hit the 40% increase in value you would see an $8 increase. You would then have to subtract the brokerage fees to buy the stock and sell the stock then pay the capital gains on the increase. Depending on the fees and the number of shares owned the increase could be almost wiped out.
#2. Lest we forget the capital gains tax!
#1 If you pay cash for a car the cost is the cash, the money you could have earned on the cash if you didn’t buy the car, minus the value of the car later when you trade it in.
#2 You have to sell the stock before you “make” any money on it. What you make is the selling price minus what you paid for the stock (the “basis”) minus any transaction costs at either end.
#3 Funds don’t calculate the costs to investors of the fees and other charges that reduce the investors’ holdings each period, or the taxes and other costs investors pay for dividence and other distributions each year.
#4 All funds underperform the market because there are costs that have to be paid to participate in the funds, the funds managers have expenses that have to be paid plus their salareis, and the funds have to hold cash to redeem investors who want to cash out so funds are not fully invested in the market anyway.
#5 Because investors in funds do not earn the annual return. Based on changes in value, the investors account be up and down every month, day, or whatever so that one big loss could reduce the account enough that future increases could never get it beyond the initial deposit.
I think the car cost you the interest on the money you would pay for the car as well as your trade in.
#1 Cost = price paid for car, plus the opportunity cost ($ that could have been made if invested), minus the trade in value of the car.
#2 is Zero. No money is made or lost until the point you sell it, the value just fluctuates.
#3 a. The typical investor in that fund probably had a 3-4% return.
b. Timing – the funds return is based on two particular points in time and the values of the fund on those dates. Most investors will not get into or out of the fund on those dates.
#4 85-90% underperform the market. There are basically 3 reasons: scope, risk, and timing. They (funds, advisors,etc.) are not purchasing the “market” but a smaller subset of it. In addition, the investments they do choose have different risk profiles then the overall market and the timing of their sales and purchases of those choices lends itself to lower overall portfolio returns.
1. Actual cost is money spent on it (car, tax, title, license, etc) less trade-in value of car immediately. Aside note: tax, title, license may end up being financed if included in the total amount if you finance the car.
2. Assuming you paid $20 + commissions for the stock and sold it when it went up 40%, and it goes up 40% then you make $8 – sales commission and fees – capital gains tax (short or long term).
3. More assumptions. The investor pays annual fees for a mutual fund (0.5% to 2%) which may or may not be included in the 18% return. The investor would have to buy exactly on the date and sell on the exact date in question.
4. 80 to 90% underperform the market over a long period of time. Many factors affect performance such as investment expenses, management expenses, poor investment selection, poor buy/sell timing.
5. If the investment went down about 50% the first year (to $5000) then up 100% yr 2 (to $10,000), down 50% yr 3 ($5000), up 100% yr 4 (to $10,000), the four year average = (-50 + 100 – 50 + 100)/4 = 100/4 = 25%
#1 Ah! So true Doug. I am glad you added those factors (tax, title, liscnese, etc), as they are expenses that go along with the car purchase.
2. 0. unless you redeem the stock.
3. The typical investor redeems 1 or more shares of the fund.
4. 100% because of fees charged to the investor.
5. You redeemed 25% per year from the fund.
1. There is an opportunity cost associated with any purchase. If you are paying in cash, you are not only giving the cash, but also any potential future return that you could have received on the money you just paid for your purchase.
2. Mathematically $8.00, but wait there is more … brokerage commissions, long term / short term capital gain taxes that are going to be reducing your true profit.
5. It’s the times we are living in. The market has no ryhm or reason at times. After such a spectacular return, you could be at the low point in the fund cycle.
I will completely agree with Joe on question #1.. You “lose” the $30k plus it growth forever and #2 with most of the group so far.
I totally agree with Joe’s response to question #1. Paying cash for a vehicle saves the buyer a TON of money, but ends up costing the dealer more in the long run because of the loss of interest payments, etc. Paying cash makes so much more sense in the long run.
1. (Bargained cash discount) cost of purchase, less the BOY ‘interest’ paid, added to my account.
2. $8 ideally. Less cost of selling stock.
3. Probably about 12%. Most did not invest the exact time period measured.
4. Almost all. Expenses. Trying to time the markets.
5. You were not invested for the full 4 year period
#1. Paying cash for the car is just another form of financing it. In this case, your investment in the car earns you a negative return. Your investment is depreciating because a car doesn’t appreciate and you’re earning nothing on your cash because it is now tied up in the car and no longer earning interest anywhere.
1. Cost to pay cash would be the cost of the cash plus the loss of interest which is <1% anually so pretty much the cash paid.
2.If you make $8 profit you need to deduct the cost of the brokerage trades.
If you have only one stock you will have lost money.
3. After fees the typical investor realized about 10% vs the 18%
4. I would guess about 75% of the firms underperform due to timing and poor decisions
5. The average is just that. If you lose 50% in year one and then gain 50% in year two you have only gained 50% of the remaining funds so you are still having less in your account than when you started. need to look at trends, not just averages.
1. I would have my special friend buy me the car while I invest in Bank on Yourself. Therefore, I would have a net gain….a car and an investment that only grows
2. I wouldn’t make anything because I obviously made a bad investment decision to buy stock rather than invest in Bank on Yourself
3. The annual return of the typical investor was a lot less than if the investors had invested in Bank on Yourself. And their returns were different than the fund because they were foolish enough to believe that the fund’s returns would be better than Bank on Yourself
4. It is irrelevant because everyone knows that mutual funds are not good investments, and also know that financial advisors care only about commissions. That is why Bank on Yourself is not yet a widely accepted investment vehicle in the financial world. Remember that you need to look out for #1 because no one else will. Therefore, it is the very wise that have Bank on Yourself accounts
5. #’s can be easily manipulated to support anyone’s claim or point of view. However, until you dig into the #’s will the truth be known. That’s why Bank on Yourself is a great investment…what you see is what you get (and more)
number 5. you start with $10,000 and gain 100% to make $20,000.year 2 you lose 50% to $10,000. year 3 you gain 100% to $20,000 again. year 4 you lose 50% to $10,000 right where you started from.that would make 200% gains and 100% in losses equals 100% divided by 4 years equals 25% that got you nowhere.
1. The cost of the car if paying in cash is the actual costs, minus the trade in value, minus the loss of interest income that cash would have earned.
2. First, there is no value until the stock is sold. Secondly, the value of the current stock does not fall into the equation – you have to look at what the cost was when you purchased the stock. Depending on how long you have held it, and what the price was when you purchased it, your gains or losses will vary greatly. And don’t forget the brokerage fees on both the sale and purchase, which must be deducted.
3. The average investor only gained 11%, because he is reactionary to the market and follows, rather than leads the trend. So by purchasing at a slightly higher rate (once the fund has begun it’s rise) and ultimately selling for a lower rate (after it begins the decline) he can never match the full performance spectrum.
4. Approximately 80% of investors, advisors, etc will underperform the market. This falls under the 80/20 rule, where 20% of the group will hold the majority of the funds. For someone to make money, someone else must loose. Generally the 80% will follow a trend, ultimately devaluing the index.
5. The return after 4 years can be a net zero if there have been annual gains and losses, so some years the total value would be less than $10,000, and other years more. If they even out, you have not gained anything on the investment.
1. 30,000 just the cost of the car.
2. $8 on paper.
4. 40-50% of funds underperform.
5.All the gains of the first 4 years can be wiped out by a bad 5th year.
Question #2. To me, it would seem to depend on how long it took to go up 40%. The obvious is $8.00 increase, minus any associated costs of the original purchase, then the sale of the stock. The stock would have to be sold though, otherwise it would just be a paper gain. If it took the stock 10 years to gain 40%, then the overall gain would be less when taking in account for inflation, as opposed to if the gain was made in 1 year.
Technically, $30,000; however, the buyer must also determine/place a value on the TIME required to accumulate/save the $30K. For many folks, saving $30K in a traditional, easily accessible savings vehicle such as a money market or ordinary savings account takes 4-5 years, perhaps longer. Once that money is paid to the car dealer/finance company. . .it’s “gone baby, gone!” You do have your new vehicle, of course, but your time clock starts over.
With BOY, you can accumulate the $30K over time within your account; and when it comes time for your vehicle purchase, request a check from the insurance company, receive the check within 48-72 hours and then be ready to negotiate with your neighborhood car dealer (ughhh). Unfortunately, BOY won’t teach you the in’s and out’s of car swagging – but then again, who can? I digress.
Back to business – The beauty of the BOY concept is. . .the cash value within your account continues to generate dividends and purchase additional PU insurance as if that 30K never left the account. You don’t lose the time it took you to accumulate your $30K through the traditional method of saving. To add on, the payments are flexible if you run in to a snag in life. How do I know this stuff? My BOY advisor and I am practicing this principle now as I just purchased a VW convertible for my spouse through BOY.
In closing, when considering BOY, research, research, research — read the book, read anything and everything on the Concept, consult and bug a BOY advisor, and get ready to take the plunge. And, oh yeah, ask yourself – “where has investing in the stock market really taken me?” Good luck on your journey.
Above is my answer to number 1, sorry.
1. $29,700 annualizied.
3. C share = 17% gross before fund management fees
4. Number varies from year to year. That is not the important question. The key is to do business with the top tier firms and money managers that outperform the market.
5. Simple question. Because you could be up 100% in the first year and down 50% in the second year and that average would be 25%. 1st year = + 100%, 2nd yr = -50%, 3rd yr = -25%, 4th yr = +33%. Average = 25%. Result = $10,000. The important thing to do is to work with an advisor and money manager who knows how to get out of the way of the downhill train.
Question #1 Cost is $30,000 plus the opportunity cost that you miss by having yo ur money all “invested” in that new car.
#2 You have a 40% gain on paper. When you actually sell it you have to subtract fees and taxes.
#4 A very high percentage underperform, mainly because of the upfront costs of the fund managers, Etc. The managers make money whether the customer does or does not make any money. The manager/advisor/broker always gets paid.
2. you don’t make any money until you actually sell your stock. Also there are broker fees to include in any calculation of profits.
2. it doesn’t matter if the stock goes up unless you sell it. broker fees add to the cost.
#1 you loose the use of all the car money if you pay cash, plus you loose the depreciation of the car, plus you loose the entire value of your trade in because you did not sell it yourself.
#1 – Your value wouldbe the cost ofthe vehicle minus the trade-in value and any operating expenses during the time you owned the vehicle.
1). Very interesting question.
1 a) Financed value is cost of loan + interest X’s LOC (lost opportunity cost) X the number years for the loan.
Then the lump sum X’s the life of (# of years) the money lasts X’s LOC.
ie) after 5-years cost is $44,091
then $44,091 X 30 years at 8%=$443,674
add the two together for a total of $487,765.50
Now multiply this by the number of cars you plan on buying…. 🙁
1b)Cash cost is; lump sum X’s # of years the money can earn money… at the interest rate of the LOC (lost opportunity cost)… this is because once you give away money, you lose that money and every dollar it will compounded interest and the opportunities that might come up to build on it FOREVER! because the money and all it’s opportunity is gone FOREVER!
$30,000 X’s 21.7245 (factor for 8% over 40 years) = $651,735
Money does not die when you do, it has a life of it’s own and properly managed will last forever, with you simply taking your needs from some of the generated stream it produces, and passing the balance to the next generation via a trust which would have little or no estate tax due at your death.
You can make money worries disappear from your life and all the generations after you… pretty cool stuff.
1. Cost paying cash = Cash paid for car – Lost interest on Cash + Trade in value or net sale of used car.
2. You don’t know. The stock may go down 40% the next day. Just look at the stock market now.
3. Can’t answer this question. More details are needed.
4. 80% per Hulbert Financial Digest. They charge yearly expenses that range from 1-2% of your investment. If they invest in Stocks and Bonds they charge the transaction fee for buying and selling. If they invest in Mutual Funds they tend toward Load Funds because they earn part of the load and they tend toward “Pay to Play” Fund Companies who pay them a fee to sell their offerings.
5. Again more details are needed before you can give a positive answer. One answer is the owner of the fund withdrew enough from the fund during the four years to end up with $10,000 dollars.
#1 If you buy a car cash, your actual cost will be the price paid for the car, PLUS the interest or gains you might have earned on your own investments had you borrowed the money instead. The real issue is this: If you can earn 5%-12% in certain investments, does it make sense to take that money out of those investments to avoid paying 4% interest on a car loan?
#2 If you buy a stock at $20 and it goes up 40%, you might assume that earned $8.00 per share. However, you must also take into account dividends earned and taxes paid. If your stock is in a taxable account, your dividends will taxed on an annual basis. But your actual “return” on you investment will not be known until you sell the stock, taking into account dividends earned and whether your “gains” are taxed as either short term or long term investments.
#3 The reason the typical investor did not realize an 18% gain is that that too many of them try to “time” the market, and they end up buying when the fund is on the rise, and selling when the fund is on the decline. The other reason is that many of the funds that are considered “top performers” are actively managed funds that charge hefty administrative fees and/or front or back end loads. In reality, though, they rarely beat the S&P average to the extent that justifies these fees.
#4 Most Financial advisors and fund managers under-perform the market. There are many reasons for this but the main one (for commission paid advisors) is that they make their money by convincing you to trade at their suggestion; In a sense, they are trying to convince you that they can time the market, but they make their money no matter what direction the market goes! The only real path to success is to buy quality, dividend paying stocks, and to do so using cost base averaging, investing the same amount of money every month, or every year, or whatever your time frame might be, whether the stock is going up or down. If the stock is down, you are getting it cheap. If the stock is up, you may be paying more, buy over time it all averages out, and if the stock is of investment grade, you can’t go wrong.
#5 Past performance is go guarantee of future returns. Millions of people today who started investing 10 years are now facing zero returns, or even big losses on their investments. Especially those who “bailed out” at the bottom on the market in 2009 and miss out on one of strongest rallies in the market’s history. Also, not all mutual funds are diversified and are subject to dramatic changes in their NAV based on even minor deviations in their market second. Finally, many charge such exorbitant management fees that whatever gains might have been made are paid back to the fund manager.
One other thing I should have said about new cars is that the cost of a car is much greater than the negotiated price and interest rate. You also have taxes, insurance, annual registration fees, maintenance expenses, and the cost of gasoline, which all together can cost you upwards of 50 cents per MILE to drive that care. Also, when you buy a new car, about $2000 to $3000 goes to marketing expenses and sales commissions. A car is only an investment in the sense that you need it to get to and from work, but it is a lousy investment. You are much better off buying a used car with, say, less than 10,000 miles on it. You will get essentially a new car (most today are not even due for their first tune up until 100,000) you will save thousands on the purchase price, and pay less on registration fees. It pays to shop around!
#1. Having only a finite amount of money to work with, I would have to second Whalen, Schoner, Nick & Fleck’s assessments (Blouin too, but much more math-y): you’re really only spending less money than the common debt routes. That cash spent represents a lost investment opportunity.
#2. Ruth & Rita said it best: you made nothing until you sell it, and even then, costs associated with selling could eat up all your profit (or severely reduce it).
#3. DePrenger nailed it, in my opinion. Those fund advisors don’t work free!
#4. Would this the 100%? None of the funds will ever perform as good as market (for the investor) because of the ‘load’ on them?
#5. This was a ‘gimme,’ I think… I’d agree with everyone who did the math: funds can lose terrifically during a year, but still show an increase — over the lowest point.
If you pay cash for your cost of your car is the cash you paid NO INTEREST.
Question: If you pay cash for a car, what’s your actual cost for the car? I agree with Nick H.
Question: What was the annual return of the typical investor in that top-performing fund? And why was their return so different from the return reported by the fund? I like Carl Schooners answer.
I would have typed out the same thing.
Thanks for letting me enter the contest!!
1. If your pay $30,000 cash for a car, your actual cost is the money you spend to buy the car, the money you spend on the car, less the trade-in value at the end of any period of time, plus the opportunity cost – the loss of interest that the $30,000 could have earned. With the Bank On Yourself Policy you borrow the money from yourself and you pay yourself interest.
#1 the actual cost of the car is the $30,000 cash, the money you could have earned in interest using the cash less the trade in value.
#2 what you sold the stock for minus what you paid for it, all transaction fees,and any taxes you need to pay
Hope I answered 1 correctly!
#4:65-75% of these so called financial wisemen and advisors have performed below the overall market. Why? Simple: They have no control over market conditions,the uncertainity due to the instability of the global economy, and by their very nature stocks, mutual funds are unpredictabile. There job is pretty much base on luck, not sound financial principles and common sense.
#5: one word to the question: volatility.
Re: Question #1: The actual cost of paying cash for a car is the price of the car (minus its value at trade-in), PLUS the income lost that the purchase price would have generated had it not been withdrawn to pay for the car, PLUS the cost of psychotherapy and family counseling when the purchasers realized the financial cost of their mistake when multiplied over a lifetime, PLUS the legal cost of separation and/or divorce when the wife realized her husband wasn’t the brightest bulb in the closet (or is it, the sharpest knife in the drawer?).
As you can see, there is a HUGE cost to pay when paying cash for a car.
Too much now that I know how to purchase a car the right way.
All the questions seem mute since learning about B.O.Y. just glad to know about it now.
Re: Question #1: The actual cost of the car is the amount of cash you paid for the car less the amount you earned by selling it after any period of time plus/minus whatever you might have earned investing the cash you paid over that period of time.
Regarding Question #2:
The mathematical answer is $8.
However,the principle of ‘theirs’ (i.e., ‘theirs’;
…’the irs’; …’the IRS’), insures that this will
most likely be reduced by capital gain taxes and
brokerage fees to result in substantially less profit.
How is it possible to have $10,000 in a mutual fund that reports an average annual return of 25% for four years… and at the end of the fourth year end up with only the $10,000 you started with?
The key to the question’s answer is hidden in this short, simple story, but hidden in plain sight for those willing to see.
And the story? You’ll like this I promise—no animals were hurt during its filming.
Imagine we are duck hunting and I shoot. I miss by a foot behind the duck. So I quickly aim and shoot again. I miss by a foot in front of the duck.
By the law of averages, I hit a bullseye.
By the law of dinner, my plate is still empty.
So, if your mutual fund reports an average annual return of 25% for four years, does that mean you’ve put more money in your account?
Starting balance: $10,000
Ending Balance: $20,000 (woo-hoo!)
Starting balance: $20,000
Ending Balance: $10,000 (ah well, at least I didn’t lose my initial investment)
Starting balance: $10,000
Ending Balance: $20,000 (hmm. . .it’s like déjà vu)
Starting balance: $20,000
Ending Balance: $10,000 (can anyone say, “Spinning my wheels”?)
Four Years later you still have $10,000 balance. But not once did the rate of return equal 25%.
Here’s the percent change for each year: 100-50+100-50.
So we add that up (100%) and then we divide that by four years to show our average rate of return is 25% for four years.
Wait! 25% average rate of return is supposed to be a great thing, right?
Follow the cash in the example above—did the cash increase? The numbers above show one scenario with 25% average rate of return and ending up with exactly the same money you started with.
However, 25% compound interest is a great thing. Take a look:
Year One: 10,000 becomes 12,500 at 25% compound interest.
Year Two: 12,500 becomes 15,625
Year Three: 15,625 becomes 19,531.25
Year Four: 19,531.25 becomes 24,414.06
Were you like me and confused about the two definitions? It’s very common to confuse them AND to assume that the average rate of return is a linear type of activity, one year after the next being the same. Average rate of return and compound interest are not the same.
Hope that was some good food for thought and that it helps you keep lots of great food on your plate in your future retirement days!
Wishing you all the best,
PS According to my wife, Amazon Gift Cards are my love language. . . .so here’s hoping you show me some love!
RE: Q4 – On average, about 87% of financial advisors/fund managers under-perform the market because you must pay commision fees to someone who is not vested in your personal investment strategies/goals.
For questions 1, 2, 3, 4, and 5:
Danged if I know!
BUT, maybe now that I’ve discovered the Bank On Yourself website, I’ll become enlightened; hallaluya. 🙂
Re: Question #5: You start with $10k. Your investment increases by 100% in the first year, leaving you $20k. In the second year, your investment decreases by 50%, leaving you with $10k. In the third year, your investment increases by 100%, leaving you with $20k. In the fourth year, your investment decreases by 50%, leaving you with your original $10k—even though the average annual return was 25%!
Re: Q#3: The typical investor in the best performing mutual fund of the last decade lost 11% annually, even though the fund itself rose by more than 18% annually. The reason this could happen is that all mutual funds are legally allowed only to advertise the results of their “buy and hold” investors, in spite of the fact that long-term mutual funds tend to be held for less than half a decade!
Re: Q#4: Eighty percent (80%) of all mutual funds and investment advisory newsletters underperform the overall stock market over the long term. The reason for this is that these investors have no way to accurately, consistently predict the direction of the market in general, or of individual stocks in particular. Unlike B.O.Y., these traditional investors and investment services base their “predictions” on luck, skill, and guesswork. However, unlike false prophets in the Old Testament, the “experts” who make incorrect financial predictions (=false prophecies) are no longer typically stoned to death (Deuteronomy 18.20).
Re: Q#2: A 40% gain on a $20 stock would yield a profit of $8.00. However, this profit would often be reduced by the cost of the original purchase and/or sale of the stock, and by long-term or short-term capital gains taxes. Most importantly, the profit is reduced by the high medical cost (sleeping pills, illegal drugs, other addictive behaviors) that comes from a lack of peace of mind, since this 40% gain is neither guaranteed nor common.
# 1 The Cost Of The Car Plus Sales Tax
# 2 The Return is Different Because The Investors Charge Fees